It's a virtual revolution: Virtual reality, the technology that puts users in a digital universe, is emerging from Wonderland into a new world of computer-aided design - led by British firms. David Bowen on a strange journey

STRANGE goings-on at the Novotel in Hammer smith, west London. In one corner, people in plastic helmets, kneeling on the floor, waving their right hands in the air. Across the room, a church bell was ringing while a group of Italians explained that it came from a town that did not exist. Next door, a woman twiddled an object the size of a tennis ball as she stared at a computer screen. 'Oh no,' her mentor exclaimed. 'You've gone through the floor again.'

This was VR94 last week, an annual shindig for the virtual reality industry. Everything about the place, from the proliferation of ponytails to the chatter about 'sphere-rendering capability' reinforced the view that virtual reality is something for the initiated - and probably the weird - few; not something the average business person needs to bother about for a couple of decades yet.

But a glance at some of the stands and the list of people attending gave a different impression: Westland and Colt were exhibiting, while those in the helmets might have been from Thorn-EMI, the BBC, the Department of Trade and Industry, the Royal Navy, Smiths Industries or BT.

If virtual reality still has a far-out image for the man on the Clapham omnibus, the man in the boardroom is starting to take it seriously. In the next year or two it will burst out of the cocoon of arcade games and take its place as a powerful new business tool, used inter alia for training, design, marketing, product and drug development and manufacturing.

In Watford, it is already out of the cocoon. Go into the British Gas showroom and you will see it used to design and sell fitted kitchens.

According to Clive Jones of Division, a VR specialist based in Bristol: 'Everyone is looking at it.' Companies that bought one machine to evaluate are coming back with repeat orders. 'And that means they are going to use it.'

Despite the deliberate mysticism of its name, virtual reality is a straightforward development in computer technology. Its daddy is computer-aided design, the use of three-dimensional graphics that allow designers to swing objects around a screen. CAD has been used since the 1970s, and is now a standard tool in engineering.

Virtual reality uses 3D computer graphics, but adds an intriguing element: the user does not look at the graphic from outside. He is taken 'inside' the computer, to walk around the graphic and even make changes in this 'virtual world'. The most effective way of doing this is with a helmet that has a tiny television screen in front of each eye to give a stereo effect: this is called immersive VR. It is, however, possible to create a virtual world on a flat screen or, as a half- way house, to use special glasses to generate the third dimension.

Parallels with Wonderland, Oz and the world of dreams are irresistible, and have driven much of the VR industry so far. In the US, or rather California, 'techno-hippies' or 'tech-heads' have been carried away with the possibilities of plugging into Wonderland every evening. One of the founders of the industry, Jaron Lanier, is also their guru. His company, VPL, was bought by the French group Thomson, which forced him and his co-founders out. 'They futzed around,' he said. 'You know the French carry a kind of psychic airbrush that fuzzes up reality.' Mr Lanier is now involved in 'a new genre of performance art' called Voomies, or virtual movies.

In Britain the biggest VR company is Virtuality, which used to be called W Industries and is the world leader in VR arcade games. Jonathan Waldern and David Payne developed a system at Loughborough University, and in 1986 started building machines in a garage in Leicester. The company turned over pounds 5.2m in 1992 and was floated last October. The shares rose from pounds 1.70 to pounds 2.89 on the first day - they are now at pounds 3.89, giving the company a market capitalisation of pounds 93m. Virtuality has sold more than 300 systems, 90 per cent of them abroad.

Last month it launched a new system with better graphics and even more terrifying games, but Waldern himself - a multimillionaire at 33 - says that entertainment is only one part of a potentially vast market.

Britain has two other VR companies that claim to lead their fields: Dimension International of Aldermaston, Berkshire, and Division in Bristol. Both have kept away from entertainment. 'The short-term growth is in fancy games,' says Pierre duPont, Division's marketing director. 'But long-term, the real volume growth is going to come from engineers and designers - that's where the big market is.'

It is not so surprising that British companies have a lead. The UK has always been good at software: the Japanese say it is something to do with the education system encouraging lateral thinking. They, in any event, have kept well away from the inventing end of VR, but are proving good customers. 'They are more interested in application than innovation,' says Clive Jones of Division, which makes a third of its sales in Japan.

America, meanwhile, has been held back by the techno-hippie image. 'It's coming across as a business thing here,' says Ian Andrew, neatly suited managing director of Dimension. 'Except in the military, it's not seen as a serious tool in the US.'

Mr duPont agrees, but believes Britain's lead will inevitably be eroded. 'There are so many start-ups in the US, we're going to lose the race in a couple of years,' he says. American venture capitalists have decided VR is the area to be in, and have been pouring funds into the outstretched hands of entrepreneurs.

It is not hard to see why. Both Division and Dimension provide a 'toolkit' with which others can build their own virtual worlds. That means their potential customer base is almost limitless.

Division, scene of much helmeted cavorting at the show, was demonstrating a software programme that will, it hopes, be snapped up the car industry.

It is a strange experience. Putting on the helmet, you find yourself looking at a 3D picture of a car in a showroom. The quality is not photographic - more cartoon-like. Only when you look round do you realise this is more than a picture: as you turn your head, so the scene changes. Turn right round and you are looking at the back wall; squat down and you get to the level of the car. Buttons on a handset make you move backwards or forwards. With a little practice you can 'walk' right round the car. Reaching out, a disembodied hand appears in front of you. It is your own, and you can use it to close the car door or turn the steering-wheel.

A system like this costs pounds 30,000 to pounds 60,000 for the hardware, with another pounds 5,000 to pounds 20,000 for the software. If it is a gimmick, it has little chance of success. Mr duPont says it is not, because it helps cut down product development time - a critical source of competitive advantage.

A car is designed first on a CAD system; then it is given 3D form in clay. The CAD system is flexible, but it is only when an engineer or stylist sees a car in clay that he can get a real feel for it.

By transferring the CAD design into a virtual world and sending the engineer into that world, Division's system gives him a feel for the car before it is set in the relatively inflexible clay. He can walk round it, get in it - even hover above it - and sort out problems that would otherwise emerge only at clay stage. 'It speeds up the product cycle and makes for better quality,' Mr duPont says. Car companies around the world are examining VR systems closely.

'Nobody's applying it publicly,' Clive Jones says. 'But they are all looking at it.'

Despite impressive capitalisation, virtual reality companies are still tiny. Division turns over pounds 2m and employs 40 people. Dimension is even smaller - pounds 1m turnover and 16 people. But, like Division, it is doubling its size every year and, Mr Andrew says: 'We're at the embryonic end of a huge industry.'

Ian Andrew, still only 34, started Dimension as a games company 10 years ago. Soon he was experimenting with software that could create 'the ultimate realism', and in 1986 he started selling a 3D computer 'construction kit'. He did not realise then that he was moving along the same path as many others. 'We just hoped we were doing it right and that there wouldn't be a great deal of competition,' he says.

The kit was successful and provided the cash to develop a much more sophisticated package called Superscape, a 'virtual-world creation software system'. It does not use a helmet: the operator manipulates a 'superball' or six-dimensional mouse to move around in the space. The screen is in effect the user's eyes. If he turns the ball, the view will swivel. As with immersive VR, it is possible to move around within the space and to 'touch' objects.

'Helmets are great for promotion,' Mr Andrew says, 'but we think 80 to 90 per cent of VR systems will be used on systems like this.' Mr duPont does not reject this notion: he believes some applications need a helmet, others do not. 'If you sit in a virtual car and look for blind spots in the rear mirror, you need immersion.'

Dimension's software is much less expensive than Division's, and runs on a 486-processor personal computer. For pounds 3,500, you can create your own world - and many businesses are doing so. Mr Andrew says Superscape has been bought by companies in training, design, education, promotion, entertainment, accident reconstruction, data visualisation and research.

Tyne and Wear Development Corporation, working with Real Time Design, has created one of the largest virtual worlds with Superscape. The pounds 180m Newcastle Quayside development has been 'built' as a VR marketing tool: anyone thinking about moving into one of the buildings will be able to look at it from outside, walk in through the front door and inspect it. They will even be able to go into an office and look out at the view.

Kitchen design is already regarded as old hat among virtual reality experts, even though there are only two systems now working in the world. Both use British software. Last year Division shipped a dollars 500,000 system to Matsushita in Tokyo, where three people can simultaneously wear helmets that bring them into the same kitchen. Once there, they can move units around or change the finish on a cupboard.

Tony Bernstein, British Gas's sales operations manager, wanted to market fitted kitchens to boost appliance sales. Hearing about the Matsushita project, he started to investigate VR. He rejected helmets, which he thought would put customers off and could make them feel sick, and chose a package created by a London-based software house, Data Plan IT.

Customers in Watford can now ask their gas showroom to send a kitchen designer round. He feeds the room's measurements into a hand-held computer called a TouchPC, made by ACS Data of Salford. The details are fed into the VR computer, which recreates the room as a virtual space. The designer then fills it with units and cookers, which are held as computerised 'clip art'. The customer comes to the showroom, wanders around his new virtual kitchen, and makes what changes he wants. As a finishing touch, he is given a video of the new room that he can play at home.

British Gas says it is too early to say how well the system is being received, but it has already decided to install machines in its showrooms in Ilford and Coventry.

Dimension is talking to furniture companies that want to provide a similar service, and are considering offering virtual clip art as a marketing tool. Retailers will have VR computers on which a customer's virtual bedroom or sitting-room will be built. The manufacturer's furniture can then be imported into the room: the customer will be able to go into it and 'walk' round a bed or sofa. Because the clip art is accurately scaled, he will see not only what it looks like, but how much room it takes up.

Virtual reality is being used by researchers working with designs that are difficult to understand in two dimensions. The systems research division of British Telecom has built a Superscape model of the group's network, while drug companies are using VR to create and examine molecular structures in three dimensions. Photosound Communications has produced VR models for SmithKline Beecham to show how a drug with a particular structure affects organs in the body, while Glaxo is funding a project at the University of York to visualise, model and manipulate chemical protein structures. Not only can the scientist manipulate the structure, the atoms attract and repel each other as they should.

Colt, the fire control equipment company, has taken the Superscape system and is adding a potentially profitable and life-saving tweak - human behaviour. Colt Virtual Reality was established last August, and has already created Vegas - Virtual Egress Analysis and Simulation. A building - or railway station, or ship - is recreated in virtual form, then filled with 'people'. They have their own characteristics: old ladies move at half the speed of young men, families tend to delay while they gather.

With the people installed, the building is set on fire. The inhabitants of the virtual world flee, and the speed at which they escape is monitored: if they do not reach the door in time, they fall over. The programme can be run thousands of times - each time the flows will be slightly different, but an overall trend can be established. The viewer can also become one of the crowd - to see how visible exit signs are, for example. One client has decided to widen the doors of a planned building by a few inches after seeing on Vegas that it would double the escape rate.

The system is at an embryonic stage. Eventually, says Colt's John Kendrick, 'we will be building in information so different psychological behaviour is programmed: we will put an agitation level in.' Vegas will also be combined with a programme that shows how a fire spreads: its virtual world will be a terrifying place.

The potential for virtual reality is immense. Other uses are:

Factory planning. Westland System Assessment used Superscape to help another group company decide on a new layout before a single real chair was moved.

Marketing: at the last London Motor Show, visitors to the Volvo stand were invited to sit in a car, put on a VR helmet, and drive off. They looked to their right and saw a truck coming straight at them. It hit them at 25mph, the car buckled, but the passengers were unharmed. A slow-motion replay showed how the car's side impact bar had taken the force.

Training: the military has well understood the potential of virtual reality. Division and the TNO Laboratory in the Netherlands have developed a virtual Stinger missile launcher. The soldier holds the weapon while wearing a VR helmet, and is whisked to open countryside with a target in his sights. The British armed forces are all evaluating virtual reality: their scale of spending is, however, likely to be dwarfed by that of the Americans. The US army training budget is dollars 1.3bn a year, and the generals seem keen to make VR a central plank of their efforts. Complete exercises can be conducted on virtual battlefields at a fraction of the 'real' cost.

Lighting: Thorn-EMI and London Parallel Applications Centre have produced a package that allows architects or engineers to get a feel for the lighting in a new building.

Maintenance: Boeing engineers use goggles to help with servicing; because they can see a virtual image of the component as it should be, they do not need to refer to a reference book.

Then there is virtual sex: an industry is emerging, and 'Cybersex' machines already exist. In San Francisco, Future Sex magazine has been launched, and money is being put into 'tele-dildonics'. By using special body suits and virtual reality helmets, it would theoretically be possible for a couple to have something approaching sex with each other, even though they were far apart. The current state of virtual reality technology makes this a dream: there have been experiments with devices to give a sensation of touch but, one VR expert says, 'they don't work'.

In the long run, VR will meet and merge with that other buzzword of the Nineties, multimedia. The so-called multimedia revolution is based on the spread of fibre-optic cabling, which will speed vast amounts of data around the world. Simple virtual images can already be transmitted on a telephone line: they do not need the bandwidth of optical fibre, and Mr Andrew believes that kitchen designs, for example, could be travelling in this way within a year. But in order to send a constantly updated, high-quality virtual image down a line in real time, great bandwidth is needed.

So it will not be until multimedia's 'information highways' are built that we will be able to hold satisfactory virtual conferences. Half a dozen people in different cities will sit wearing helmets or special glasses, apparently in the same room. They will not have to look like themselves: they can be Marilyn Monroe or a stick of rock if they like. If the boss wants to show displeasure, he can conjure up a dark cloud above his head, or turn himself into a fire- breathing dragon.

It may or may not make for greater efficiency; but it will certainly make meetings more interesting.